Aerotel Ltd v Telco Holdings Ltd

In this action Aerotel sue Telco Holdings Limited and others for infringement of patent GB2171877. The alleged infringements are not admitted by Telco but, in any event, Telco claims that the patent is invalid and ought to be revoked.

The grounds of invalidity specify a number of grounds upon which it is said that the patent is invalid. The first of those grounds is that the alleged invention as claimed is not an invention for the purposes of the Patent Act 1977 because it consists of a scheme, rule or method for doing business as such. Telco are confident enough in that ground of invalidity to bring this application for summary judgment under Part 24 of the Civil Procedure Rules claiming to revoke the patent.

Both counsel, Mr. Speck for the defendants Telco, and Mr. Carr QC for the claimant, invite me to apply the principles to this application set out in the judgment of the Vice-Chancellor in Celador Productions v. Melville [2004] EWHC 2362(Ch). In paragraph 7 of his judgment, the Vice-Chancellor, having referred to authority, said:

"From these sources I derive the following elementary propositions: (a) it is for the applicant for summary judgment to demonstrate that the respondent has no real prospect of success in his claim or defence as the case may be; (b) a 'real' prospect of success is one which is more than fanciful or merely arguable; (c) if it is clear beyond question that the respondent will not be able at trial to establish the facts on which he relies then his prospects of success are not real; but (d) the court is not entitled to an application for summary judgment to conduct a trial on documents without disclosure or cross-examination."

The patent in suit in the present case is entitled: "Telephone system". It claims a method of making a telephone call using prepayments. It begins in the conventional way by describing the perceived problems with making telephone calls as at the time when the application for the patent was made; that is to say, in the mid or late 1980s.

The patent says on page 1:

"Further, toll or long distance telephone calls are used more and more as people travel more and conduct business on a less localized basis. Presently long distance calls can be made by charging the call to a local telephone such as for example to a telephone in a hotel room. The long distance call can be made by instant payment such as for example when using a public payphone. The long distance call can be made by charging the call to the calling party's home or business telephone or by using a telephone company credit card number. The long distance call can also be made as a 'collect call' where the called party has to accept the call and is then billed the time and charges for the call.

Each of these present day methods for making and paying for toll calls has significant detriments. For example when a call is charged to hotel room telephones the hotel adds its charges to the call thereby disproportionately increasing the cost of the call.

It is extremely difficult to make long distance calls from public payphones since it requires large amounts of the coins – not ordinarily carried about – especially when touring or on a business trip.

The use of credit card calls often results in mistaken charges billed to the telephone credit card number. Further, to obtain a telephone credit requires credit checks and the establishment of credit, often almost impossible to acquire.

Salesmen similarly should be able to call their home offices from a customer's telephone without having the call charged to the customer's telephone which is inconvenient or to their home office phone with the previously mentioned difficulties and the added cost.

Thus there is a long felt need for a system which enables making telephone calls including local or toll calls conveniently, inexpensively and from any telephone. Thus, if a party wants to make a call, be it a local call or a long distance national or international call, he should be able to accomplish the call from the nearest available telephone."

Despite what one might think to be a considerable degree of hyperbole in the description of the difficulties facing a telephone user, it is accepted for the purposes of this application that I must treat what is said in the patent as true.

The patent identifies a number of existing means by which a telephone call can be made without charging the telephone call to the telephone being used by the caller. It can, says the patent, be made by charging the call to the calling party's home number or the calling party's business telephone or by using a credit card. In addition, the patent also refers to making calls as a "collect call". There are, according to the patent, therefore, at least four methods by which a telephone call can be made without charging the call to the telephone number from which the caller is actually calling.

The patent goes on to describe in outline the method which it claims to have invented to solve the identified problems. The patent continues:

"According to a broad aspect of the invention, a telephone system for facilitating a telephone call from any available telephone station, comprising: means for coupling a calling party station to a special exchange; memory means in the special exchange for storing customer special codes and prepayment information individual to each customer; means for verifying the calling party responsive to a code transmitted from the calling party station to the special exchange so as to verify that the code matches the special customer code in the memory means and the calling party has unused credit; and means for connecting said calling party station to a called station responsive to the verification."

Those are the broad outlines of the scheme, although the patent goes on to deal with other optional extras which are not in the claim itself.

When one comes to a description of the system in more ordinary language, the patent describes it as follows:

"The customer, such as a regular telephone user or a traveller, acquires a special code, a credit amount and the telephone number of the special central offices by either a cash or credit card payment. The code, the credit amount and telephone numbers may be acquired, for example through the regular credit card companies and charged to the acquirer's credit card. Alternatively, the credit amount, the telephone numbers and identifying code can be purchased at sales points such as in airports, hotels, rent-a-car stations and the like. The amount paid is credited to the acquirer for use against future telephone calls. The credited amount is stored in a memory at the special central office along with the special code."

It continues:

"Subsequently thereto, the acquiring party wishes to make a telephone call which may be a local call or a toll call. He uses the nearest available telephone, removes the handset and dials a special central office ….. The telephone in this example is a private station. When he is connected to the special central office ….. a special dial tone is sent from the special exchange to a calling station. When the calling party hears the special dial tone indicating that the computer at the exchange is ready for him he dials the identifying code and the called number he wants ….. The computer at the special exchange checks the code and registers the desired called number.

If the code number is a genuine code with credit i.e. valid ….. a regular dial tone is sent to the calling party station as he is connected to the regular telephone system. The computer at the special exchange routes the call on the most economical available lines, according to prior arrangements with long distance line suppliers if it is a toll call."

Again, not all of that appears in the claim itself.

The method goes on to explain that the call is monitored by equipment at the telephone exchange recording the amount of time spent on the telephone and that if the amount of the prepaid credit runs out, then the call will be automatically terminated.

When we come to the claim itself, it claims as follows:

"1.

A method of making a telephone call from any available telephone, comprising: obtaining a special code by making a prepayment; inserting the prepayment in a memory in a special exchange and being allocated to the special code in the memory for use in verifying a calling party call; dialling the special exchange when a telephone call connection is desired; inputting the special code for verification; inputting the number of called party; verifying at the special exchange by checking the special code and comparing the prepayment less any deductions for previous calls in the memory with the minimum cost of a call to the called party station; connecting the called and calling parties' stations in response to said verification; monitoring the remaining prepayment less deductions for the running cost of the call; and disconnecting the call when the remaining prepayment has been spent by the running cost of the call."

That, then, is a description of what is claimed by the patent.

The parties are agreed that rather than look at the Patents Act 1977 I should go straight to Article 52 of the European Patent Convention, which provides as follows:

"(1)

European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step.

"(2)

The following in particular shall not be regarded as inventions within the meaning of paragraph 1: (a) discoveries, scientific theories and mathematical methods; (b) aesthetic creations; (c) schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers; (d) presentations of information".

The correct approach to the interpretation of this part of the Convention was discussed by the Technical Board of Appeal of the European Patent Office in Hitachi Limited, Case T258/03. The Board adopted a very low threshold test for what amounted to an invention but indicated that questions of excluded areas would come in again when questions such as obviousness and novelty were considered. This interpretation of Article 52 is not one which I would have arrived at by the light of nature but it seems now to represent the law. The most comprehensive discussion of the law in recent times is that of Mr. Peter Prescott QC, sitting as a Deputy Judge of the Chancery Division, in CFPH LLC's Application [2006] RPC 5. In discussing the Hitachi case, he said at paragraphs 86 and following of his Judgment:

"This was confirmed in the Hitachi case. The alleged invention was an automatic auction carried out on a computer system. A problem that arises when auctions are carried out on-line is that bids get delayed in transmission and so out of synchronisation. According to Hitachi's idea you solve the problem as follows. The auction starts by asking the bidders to transmit two prices down the line, one the 'desired price' and one the 'maximum price'. After this initial phase the auction is automatic and does not require the bidders to follow the auction on-line. They just get the end-result: who won. The result is calculated by the computer by setting a price and successively lowering it (known as a 'Dutch auction') until it reaches the level of the highest 'desired price', as already sent in by the various bidders, of course. In the event of a tie the computer increases the price until only the bidder having the highest 'maximum price' is left. He is the winner.

"The board held that the first thing to do is to ask if the invention is excluded by Art. 52(2) without any knowledge of the prior art. If it can be seen that there are any 'technical' means at all – and those could include even pen and paper – the first stage is successfully passed. You have an 'invention'. For this purpose there is no difference between an apparatus claim and a method claim (to that extent disagreeing with Pension Benefit). The 'technical contribution' approach, followed by our Court of Appeal in Merrill Lynch, Gale and Fujitsu, was expressly rejected.

"The next stage is to consider whether the invention was new and, if so, was obvious, 'by taking account of only those features which contribute to a technical character'. In Hitachi the Board held that the invention was obvious because the computer-technology features were obvious and the 'clever' part (if any) was the way of doing the auction, which pertained not to what was 'technical' but to a method of doing business.

"That Hitachi's idea overcame a technical problem that afflicted on-line auctions (lack of synchronicity) was irrelevant, said the Board, because the problem was solved by business not technical means."

It is, I think, clear that the word "obvious" is being used in two quite different senses. It is used in the sense of taking a step which would not occur to a person skilled in the art and it is also used as meaning a step which is a clever step to take but which is not the right kind of step. In other words, obviousness is used to describe both the quality of the step and the character of the step in question. That is borne out, I think, by the way in which Mr. Prescott approached the case in front of him. The case involved a system of wagering and in paragraph 119 of his judgment, Mr. Prescott said:

"I wonder whether that concept is novel in the world of gaming. But assume all the same that the applicants' idea is new and is not obvious. Under what description is it new and not obvious? Under the description 'methods of doing business'. It is not patentable. In my judgment this can be nothing more than an innovation in a method of doing business."

Much the same approach can, I think, be seen in the judgment of Pumfrey J. in Shopalotto.com Ltd's Application [2006] RPC 7. His judgment was given after Mr. Prescott's judgment in the CFPH case but the case was argued before the judgment was delivered in that case and, no doubt, for that reason Pumfrey J. does not refer to it. None the less, in paragraph 12 of his judgment, he makes it clear that:

"…one should not confuse the scope of the contribution on the one hand with the area in which the contribution is made on the other."

Mr. Carr urges upon me that it is not possible to evaluate the contribution which this particular patent makes to the art without an examination of the prior art and without listening to arguments about construction and, possibly, listening to expert evidence as well. However, as Mr. Speck points out, if I take the scope of the patent at face value, then questions of construction of the claim and the adjudication between the rival views of experts can only narrow the scope of the claims. They cannot, realistically, be said to widen them.

So the real question, it seems to me, is can I, on the state of the materials, as they are at the moment, be confident in forming the view that the only possible area of contribution of the present patent is in a method of doing business? It is clear that none of the equipment which is used in the method is new equipment. If that were not clear from the patent itself, it is made clear by the evidence of Mr. Hart, who is the expert called on behalf of Aerotel itself. Although he says that the system described in the patent has revolutionised the way in which telephone calls can be made and the way in which charges can be processed, he, none the less, is clear that the method would have been implemented using an electronic control exchange of a kind that had been available in the UK from the 1970s. Nothing else in the patent of a technical nature, in the sense of equipment, is said to be new and none of that technical equipment is described except in the most general terms.

Mr. Carr submits that it is or can be a patentable invention to use known equipment in a new way. No doubt that is correct, but the question is, as it seems to me, how is that known equipment used? If it is used in a way that amounts to no more than a method of conducting business, then it still falls outside the area in which a patent can be granted.

Having regard to the way in which the patent describes the method and having regard to the way in which it solves what is a problem simply of payment for telephone calls, I have come to the conclusion that it does, indeed, describe no more than a method of business and that allowing this action to proceed to trial is most unlikely to alter my conclusion.

I consider, therefore, that there is no realistic prospect of Aerotel succeeding on this part of the case. That being so, I hold that Telco have made out one of the grounds of invalidity. One ground of invalidity is enough and it follows, I think, that I should revoke the patent.